Wisconsin drivers who have no credit history pay an average of 80 percent more in car insurance premiums than people with an excellent credit score, according to a new study by WalletHub.

That’s among the largest differences in the nation.

The consumer group WalletHub’s “2014 Car Insurance by Credit Score Report” ranks Wisconsin 12th in the nation among states with the biggest price difference. The average nationwide is 65 percent.

WalletHub is concerned that the reliance on credit reports that frequently have errors could negatively and unfairly affect drivers’ insurance rates.

Yet, it also agrees with insurance companies, who defend the use of credit scores, saying the scores help them evaluate insurance risk so they can charge consumers a premium based on how large of a risk they pose.

The study is based on car insurance quotes that WalletHub received this year from five major insurance companies — Allstate, Farmers Insurance, Geico, Progressive and State Farm — for two hypothetical, identical drivers. Both were 36-year-old unemployed men who drive a 2008 Honda Accord. The only difference between the two was that one had excellent credit while the other had no credit history.

The study found that the man without a credit history would pay much more for coverage in all but three states — California, Hawaii and Massachusetts, which don’t allow use of credit scores to determine rates. The average price difference ranged from an 18 percent higher premium for the man without a credit history living in Vermont to a 126 percent higher rate in the District of Columbia.

The nation’s 15 largest car insurance companies all use credit-based insurance scores in some capacity, according to the Federal Trade Commission. Credit scores reflect whether consumers have paid their bills on time, have maxed out their credit, how long they have had credit, whether they have applied for new credit recently and how many credit accounts they have.

Insurance companies use the scores because of their accurateness in predicting the likelihood that a customer will file a claim and if the person does, how many claims and the total cost of those claims. To evaluate how much of a risk individual consumers pose, insurance companies also divide people into groups based on factors such as age, gender, education level, marital status, place of residence and driving history.

The WalletHub study showed State Farm had the lowest premium fluctuation for a man with no credit score compared with one with excellent credit (45 percent), closely followed by Progressive (47 percent). Allstate appeared to rely on credit scores the most and thus had the biggest differences in premiums. With Allstate, a driver without credit would pay more than twice that of someone with excellent credit, a 116 percent fluctuation.

Meghan O’Kelly, a spokeswoman for Allstate, defended insurance companies’ use of credit scores. She cited a 2007 FTC study that found that as a result of the companies considering credit scores, higher-risk consumers pay higher premiums while lower-risk consumers pay lower premiums. O’Kelly said it’s only fair that drivers who statistics show are more likely to get into an accident pay higher rates.

O’Kelly noted that no single factor guarantees a higher premium and that other factors can help offset a bad or lacking credit score — for instance, where people live and the car they drive, because some cars are more expensive to repair. Some insurance companies offer discounts to drivers who have good driving habits or don’t file claims.

In the past, critics also expressed concern that consumers could be unfairly penalized for having suffered from a medical or economic crisis and that minorities and low-income consumers may be more negatively affected.

Odysseas Papadimitriou, CEO of WalletHub, said his organization supported the use of credit in car insurance “because it’s all about everyone paying what they should be paying.” However, he said, studies have shown one out of every four credit reports has errors. This means consumers’ credit could inadvertently hurt them — especially when a consumer doesn’t know credit scores are being considered, he said.

Existing law entitles consumers to one free credit report per year, but Papadimitriou said consumers ought to get a free report every time a company accesses the reports so they can look for errors.

Federal law requires insurance companies that deny consumers insurance or offer less favorable terms because of information in their credit report to give them a notice with certain information. The company must include the name, address and phone number of the credit reporting company that supplied the information, according to the FTC. If credit score was a factor in the company’s decision, the notice must include the credit score. People who receive a notice are entitled to a free credit report.

Consumers have a right to a free annual credit report from each of the three major credit reporting companies, Equifax, Experian and TransUnion. A free copy can be obtained at annualcreditreport.com, by calling (877) 322-8228 or by completing an annual credit report request form and mailing it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

The FTC says consumers can improve their credit score by paying their bills on time, paying down outstanding debt and not incurring new debt.

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